ARCHITECTS AND QUANTITY SURVEYORS REGISTRATION BOARD

16TH CONTINUING PROFESSIONAL DEVELOPMENT SEMINAR

during 5-7 September 2011 at Mlimani City Dar es Salaam

LAW AND PRACTICE RELATING TO BUILDING WORKS CONTRACT AGREEMENTS

by S. J. Chavda

Consulting Engineer Director, DESIGN PARTNERSHIP LTD

Former Chairman, ASSOCIATION OF CONSULTING ENGINEERS TANZANIA
Former Vice-President, INSTITUTION OF ENGINEERS TANZANIA

ABSTRACT
The paper briefly deals with an historical development of law of contract: the doctrine of
consideration; the phenomena of agreement; contractual behaviour; assignment of
contractual rights and liabilities; performance and breach; termination; discharge; remedies
for breach of contract.
It then gives some key aspects of construction contracts: allocation of risk; employercontractor obligations and so forth (it covers the traditional format in some detail and
makes mention of design-and-build contracts)
Finally, it examines contract agreements relating to building works, conditions of contract
(or articles of agreement); tender documents; contractors obligations on materials,
workmanship, progress & completion and insurances; employers obligation as to
possession of site, giving of timely instructions, payments; sub-contracts & specialists;
acceptance & defects; certification; variations, liquidated damages, extension of time;
release, frustration; forfeiture, repudiation and determination; subcontracting, assignment
and sub-letting; dispute resolution & arbitration.
Disputes in building contracts are also included.
1. INTRODUCTION
Unlike in earlier times, building works, whether simple or complex, are now generally
executed by contractors for employers (who may be private or public entities) on basis
of contract agreements which are legally binding. However, as we all know, execution
of building works is rarely straight forward especially if its contract agreement is
ambiguous or incomplete.
As with all legal documents, building works contract agreements need to be clear,
precise and comprehensive; contractors, architects and quantity surveyors must
comprehend them fully.
Not surprisingly, in 1980s some 20% of all international disputes related to
construction contracts; the number of disputes is rising each year.

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2. HISTORICAL DEVELOPMENTS
The development of both the law of contract, as we know it today, and its construction
sector applications in building and civil engineering are well documented.
2.1 Law of Contract
In mediaeval times, common law (i.e. the municipal law of England as opposed to the
Roman Civil Law) prevailed and was largely concerned with serious crime and land
matters; important contracts from around year 1200 AD were in writing and it was the
practice to seal them (a mere blob of wax impressed with finger nail sufficed) after
which they became formal contracts and were actionable at common law; yet, much of
the contractual transactions covering sale of goods, bailment, loans of money, etc. was
still through word of mouth, by informal agreements which left a serious gap in that
there was no action available for breach of an informal agreement to do something,
for example build a house!
As from around year 1400 AD, an action known as assumpsit (derived from the
allegation in the Latin pleadings that he has undertaken), a voluntary promise, was
used to enforce transactions which, then, were still informal contracts for which remedy
was damages assessed by jury
Some two hundred years later, by the early seventeenth century, common law permitted
action for breach of promise and so it availed remedy for breach of any informal
contract.
Whereas assumpsit dealt with long established liability (e.g. liability to pay for goods
sold) there arose, around that time, a need to deal with promissory liability and this
gave rise to doctrine of consideration a motivating reason under which the
actionability of a promise depended upon an examination of the reason why it should
be enforced or not enforced.
By the nineteenth century, there was further evolution: there was shift from unilateral
notion of a promise to that of a bilateral concept consensus of both parties which
generated rights and duties of the parties: lack of consent is fatal to the existence of a
contract. Thus, a contract may be expressed as follows:-

CONTRAC
T

Phenomenon of
Agreement

Consideration

Intention to Create
Legal Relations

To this day, the foregoing remains unchanged as regards contracts.

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2.2 Building Works Contract Agreements

From the time of the pyramids of Egypt to mid nineteenth century, building works (and
indeed civil engineering works) both in private and public sectors were executed by
direct employment of both skilled and unskilled labour either by the master builder
on behalf of an employer or directly by the employer who had the chief responsibility
to make payments. Works contract agreements, as we now know them, came into being
generally throughout Europe & North America by around the year 1850; these involved
employercontractor agreements; it is also when professional Architectsor Engineers
in France (and Quantity Surveyors in Britain or Measurement Engineers in the US)
were being commonly deployed, under a separate engagement contract, by the same
employer and with the professionals being named in the works contract agreements as
employers duly appointed agents. Such an arrangement may be termed a traditional
contract to distinguish it from a modern version, gaining popularity as from 1980s,
known as designandbuild. This latter version is, as yet, new in Tanzania; under this
approach, there is an integration of previously separated specialties a sort of one
stop shopping under which the contractor is given a performance specification.
In Tanzania, most building works are currently executed on the traditional format
involving detailed drawings and bills of quantities prepared by professionals as well as
the deployment of a standardized Schedule of Conditions of Building Contract.
3. BUILDING WORKS CONTRACT AGREEMENTS: The Essentials
In practice, a Building Works Contract Agreement (BWCA) may be viewed as:
BWCA = Offer + Acceptance + Exchange of Promises
3.1 The offer, by the successful Contractor, takes the form of a priced bid inclusive of a
statement as to completion time; the bid price is the Contractors consideration for
executing the project works.
3.2 Acceptance, by the Employer, of the priced bid is a written document usually, a letter
of intent signed by its duly authorised representative(s); having the project works
executed is the Employers consideration for paying the bid price.
3.3 Exchange of promises are the methodical setting out of the rights and obligations of the
two parties the Employer and the Contractor. This is usually done in the form of a
standardized Schedule of Conditions of Building Contract.
3.4 The following 9 points provide a ready guide as to what a good contract should set
out: the contracting parties
the authorised representatives of the parties
scope of work (defined by BoQ + Drawings)
time for completion (extension of time provisions)

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rights and obligations of the parties

procedures for payments on the project
dispute procedures
what damages can be recovered, e.g.
- interest on delayed payment
- liquidated damages for delayed completion
indemnity obligations

4. BUILDING WORKS CONTRACT AGREEMENTS: A Summary of the Law

Following are the key legal features of a modern standard form of a traditional building
works contract agreement:

An entire contract is one in which what is described as complete performance by one

party is a condition precedent to the liability of the other party: Cutter v. Powell (1795)
and Munro v. Butt (1858).

Whether a contract is an entire one is a matter of construction; it depends upon what the
parties agree. A lump sum contract is not necessarily an entire contract. A contract
providing for interim payments, for example, as work proceeds but for retention money
to be held until completion is usually entire as to the retention monies, but not
necessarily the interim payments: Lord Justice Denning (as he then was) in Hoenig v.
Isaacs (1952).

The test of complete performance for the purpose of an entire contract is in fact
substantial performance: H. Dakin & Co. Ltd v. Lee (1916).

What is substantial is not to be determined on a comparison of cost of work done and

work omitted or done badly: Kiely & Sons Ltd v. Medcraft (1965), and Bolton v.
Mahadeva (1972).

If a party abandons performance of the contract, he cannot recover payment for work
which he has completed: Sumpter v. Hedges (1898).

If a party has done something different from that which he contracted to perform then,
however valuable his work, he cannot claim to have performed substantially: Forman
& Co. Proprietary v. The Ship Liddesdale (1898).

If a party is prevented from performing his contract by default of the other party, he is
excused from performance and may recover damages: dicta by Mr. Justice Blackburn in
Appleby v. Myers (1866); Mackay v. Dick (1880).

Parties may agree that, in return for one party performing certain obligations, the other
will pay to him a quantum meruit. A contract for payment of a quantum meruit may be
made in the same way as any other type of contract, including conduct.

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5. BUILDING WORKS CONTRACT ADMINISTRATION: The Practice

The following are useful aspects to be noted when administering any building works
contract:(a) Site Possession
It is an implied term in every building contract that the Employer will give
possession of the site to the Contractor in sufficient time to enable him to
complete his obligations by the contractual date
The general principle is that in a project for new works the Contractor is entitled
to exclusive possession of the entire site; however the Employer must give the
Contractor a sufficient degree of possession to permit the execution of the works
unimpeded by others.
(b) Instructions
An Employers failure to issue drawings and other information necessary for the
execution of the works and at the proper time is breach of contract.
(c) Settlement of Certified Payments
Most modern building contracts provide for certification and settlement of interim
payments. Employers failure to make payment when due does not normally
amount to a repudiation of contract nor entitle the Contractor to repudiate a
contract. The Contractors remedy is sue the Employer on the certificate.
However some contracts have express terms which confer additional rights on the
Contractor which make the Employers failure to pay on any certificate a ground on
which the Contractors may determine his employment under the contract.
(d) Nominated Sub-contractor/Suppliers
Most major building works contract provide that the Employer may nominate subcontractors or suppliers.
If a nominated sub-contractor or supplier fails, during the continuation of the works,
Employer is under a duty to re-nominate and to pay the actual cost of the substuted
sub-contractors work.
(e) Variations
It is usual for modern building contracts to empower the Architect to issue
Variation Orders in certain (often widely defined) circumstances. However, it is
clear that the work which forms part of the contract cannot be taken away as a
variation order from the Contractor and given to others; indeed, it would be a
breach of contract.
In some cases, the Architects failure to issue Variation Orders may constitute
breach of contract by the Employer.
(f) Extension of Time

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Unless there is an extension of time clause, the Contractor is under a strict

obligation to complete on time. When the reason for Contractors failure to
complete on time is wholly or partly the fault of the Employer, time may become
at large and the Contractors obligation is then to complete within a reasonable
time. Failure by the Employer properly to grant an extension of time may have the
effect of setting time at large.
(g) Certification
Modern building contracts contain provisions that the work is to be executed to the
satisfaction or reasonable satisfaction of the Architect. When so certifying, the
Architect must act independently as between the Employer and the Contractor.
Whether or not the work is to the reasonable satisfaction of the Architect is to be
judged objectively.
Where the contract provides for the issue of certificates by the Architect, it is an
implied term that the Employer will do nothing to prevent the independent exercise
of the Architects powers as certifier. If the Employer does so, the need for a
certificate is dispensed with and the Contractor can sue without a certificate.
(h) Liquidated Damages
If there is a liquidated damages clause in a building contract, it does not matter
whether the actual loss is greater or less. The liquidated damages are recoverable
whether or not the Employer can prove that he has infact suffered loss, or even if,
there is no loss at all.
An Employer is not entitled to liquidated damages if by his own acts or omissions
he has prevented the Contractor from completing the works by the completion date.
A provision for liquidated damages is only enforceable if the amount fixed is a
genuine pre-estimate of the loss likely to be caused by the breach; if the agreed sum
is extravagant in relation to the greatest possible loss it will be held to be a penalty
which is invalid.
(i) Claims
Building contracts frequently contain express provisions enabling the Contractors to
claim for loss and expenses which he incurs as a result of certain specified events.
Direct loss and/or expense includes a claim for managerial and supervisory
expenses directly attributable for matters which have materially affected progress of
the works (i.e. prolongation or disruption events).
Direct loss and/or expense covers interest or financing charges where appropriate;
any such interest allowed should be assessed at a rate equivalent to the cost of
borrowing disregarding any special position of the Contractor.
(j) Repudiation & Determination
Repudiation is an act or omission of a party which can fairly be regarded as
indicative of an intention by that party that it is no longer bound by the terms of the
contract; it must be shown that the party to the contract made quite plain his
intention not to perform the contract. This amounts to repudiation of the contract by
that party and through it, the other party can determine the contract.

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Similarly, a party which commits a fundamental breach (one which goes to the
root of the contract) will entitle the other party to determine the contract.
Upon determination by either party the terms of the contract must set out the
rights and the obligations of the parties; for the Employer, this may include
forfeiture.
(k) Forfeiture
When poor progress by Contractor or his bankruptcy jeopardises the completion of
a project, contracts may incorporate clauses to enable Employer to forfeit
contractors plant and materials so as to deploy them to complete the project.
Depending on the exact wording of the contract clauses, forfeiture may amount to
empowering the Employer to transfer the right to ownership or to possession.
The Employer (or the Architect on his behalf) must serve a notice, however.
(l) Vesting of Materials
a. It is commonly assumed that unfixed goods and materials (whether on or off
site) automatically belong to the Employer if these are paid for through
interim certification process. This is true only if the Contractor has infact
paid for them: goods and materials which, if not paid for, can be lawfully
removed by the respective supplier (or sub-contractor) should a situation
require this (.e.g. Contractors bankruptcy)
b. The situation is different as regards goods and materials which are
incorporated in the works which, if certified and paid for by the Employer,
the Employer retains title even if such goods and material have not been
paid for by the Contractor.
(m) Frustration
The obligations of the parties may be brought to an end by the doctrine of
frustration. This applies to developments which, without making performance
strictly impossible, make performance fundamentally different from that
contemplated at the time the contract was made.
It is not sufficient to show that the contract has turned out more difficult or
expensive for the Contractor to perform than expected.
(n) Arbitration
In the absence of an arbitration clause in a construction contract, any dispute taken
up in law courts will be referred to arbitration. In this country, the Arbitration Act
Cap 15 RE 2002 will be applicable; this is supplemented, generally in Tanzania, by
National Construction Councils Arbitration Rules which are tested and have been
proved to be most effective.
An arbitrator is usually expressly empowered to open up, review and revise any
certificate etc and to determine all matters in the dispute, in the same manner as if
no such certificate, opinion, decision, requirement or notice had been given

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6. DISPUTES IN BUILDING WORKS CONTRACTS

6.1 Disputes Generally
In a clearly worded contract (involving an Architect selected on merit and with a bonafide Contractor engaged on a competitive selection) Employer-Contractor disputes
ought to be minimal. Each party is expected to fulfill its obligations. A value-for-money
project would be assured. Even so, some disputes would emerge, especially in the
larger projects; such is the complexity of construction projects and their susceptibility
to numerous risks.
Common situations which give rise to construction project disputes are:

uncertainty in scope of works

delays in completion time
differing site conditions (e.g. foundation soil)
partial or delayed access to site
late approvals or instructions (by Architect etc)
changes in design/material/specification
non-payment

As has already been mentioned, construction industry disputes make up a

disproportionately high percentage 20% in the 1980s of international disputes; the
numbers of such disputes is rising; in recessionary times, there is a marked increase in
construction disputes as the contractors are under pressure to cut costs.
Unresolved disputes can be addressed by arbitration proceedings.
6.2 Disputes in Tanzania
The reality in Tanzania is different, especially in the very large publicly funded building
projects: an Architects appointment despite the enforcement of Public Procurement
Act 2005 is not always on merit, the Contractor (usually with an overpriced bid, for
siphoning public funds) is not necessarily bona-fide nor competitively procured and the
public Employer one of some 350 procuring entities may not be interested in
having a value-for-money building project. In such a situation, Variation Orders,
Extension of Time, Claims Settlement, Determination proceedings and all the rest of it
may well lack contractual basis; and so, ordinarily, such projects would be beset by a
multitude of disputes; however, here, it is very rarely in any partys interest to enforce
contract terms through a formal dispute resolution process. There is, for this reason, a
complete absence of disputes. Instead, skillfully prepared paper-work is provided to
cover-up such projects: one is thus readily misled into believing that all is well in the
public sector.

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On the other hand, all those in the private sector who propel the on-going apparent
Dubai-style mega project boom in this country, will ensure that they, too, stay clear of
disputes even if there is a contractual basis to do so because it serves no purpose to
open up something which could then risk the projects exposure as a money
laundering exercise; instead, in such projects, the focus is always not only to achieve
real value-for-money projects but also, as a parallel exercise, to create all the
paperwork to show loss or profit as a book-keeping device which best records it
officially as a legitimate investment in Tanzania with attendant tax advantages. In
such projects, actual ownership, the true contract sum, mode of payment and source of
funding can never be established.
Consequently, for both types of such mega projects in Tanzania, disputes are rare.
Real disputes in this country, when they do arise, relate chiefly to small or medium
building projects. Here, the contracts are mostly genuine. Such may be opened up
under an arbitration clause and to my knowledge, these are then dealt with fairly.
7. CONCLUSION
This presentation, because of the inherent nature of a contract, has become lengthy.
Let me conclude simply by saying that a construction contract is a complex net of
contracts and other obligations, each of which must be carefully considered. There must
be no ambiguities. Time element is important and so the contract must be designed to
ensure that each side is capable of performing, within the time, the obligations set out.
A contract including a building works contract is the exchange of a set of
obligations between two or more parties; it is not so simple a matter as trying to get the
other side to agree to as much as possible in exchange for as little as possible.

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REFERENCES
______________________________________________________________________
1. Cheshire Fifoot & Furmston, LAW OF CONTRACT, 12 th Edition Buttersworth,
1991
2. Lord Denning, THE DISCIPLINE OF LAW Buttersworth, 1979
3. Hudsons BUILDING AND ENGINEERING CONTRACTS, 10 th Edition Sweet
& Maxwell, 1970
4. V Powell-Smith and M Furmston, A BUILDING CONTRACT CASEBOOK
Granada, 1984
5. John Parris, THE STANDARD FORM OF BUILDING CONTRACT: JCT 80
Granada, 1982
6. AGREEMENT and SCHEDULE OF CONDITIONS of BUILDING CONTRACT
(with Quantities), sanctioned by The East African Institute of Architects et al
1977 Edition (Revised & reprinted in April 1991)

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